ou own two massage parlours located in a big city, one of them in a central residential neighbourhood and the other on the outskirts. The price elasticity of the demand of the customers of the residential neighbourhood is, in absolute value, 1.25 and that of the clients who live on the outskirts is, in absolute value, 2.5. The marginal cost of a full massage is € 12 regardless of the location of the salon. a) If your goal is to get the maximum possible benefit, what price should you charge in each salon for a full massage? b) Use the Lerner index to determine the market power it holds in each of the segments.

ou own two massage parlours located in a big city, one of them in a central residential neighbourhood and the other on the outskirts. The price elasticity of the demand of the customers of the residential neighbourhood is, in absolute value, 1.25 and that of the clients who live on the outskirts is, in absolute value, 2.5. The marginal cost of a full massage is € 12 regardless of the location of the salon. a) If your goal is to get the maximum possible benefit, what price should you charge in each salon for a full massage? b) Use the Lerner index to determine the market power it holds in each of the segments.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter6: Simple Pricing

Section: Chapter Questions

Problem 6.1IP

See similar textbooks

Similar questions

Your Best Brand Bike Shorts - BBB Shorts have been flying off the shelf. Your chief economist tells you that during the Covid-19 pandemic, "the taste for bicycling has changed. The price elasticity of demand is much more inelastic. The price elasticity of demand has decreased from -5.76 to -2.70." Before the campaign, your price was $240 per pair of BBB Shorts. What should the new price be? Please enter the new price here: $ [a] Show only your answer in the box. Do not include steps in the calculation and do not include the dollar sign.
Your Best Brand Bike Shorts - BBB Shorts have been flying off the shelf. Your chief economist tells you that during the Covid-19 pandemic, "the taste for bicycling has changed. The price elasticity of demand is much more inelastic. The price elasticity of demand has decreased from -5.76 to -2.70." Before the campaign, your price was $240 per pair of BBB Shorts. What should the new price be? Please enter the new price here: $ [a] Show only your answer in the box. Do not include steps in the box and do not add the dollar sign.
Your Best Brand Bike Shorts-BBB Shorts have been flying off the shelf. Your chief economist tells you that during the Covid-19 pandemic, "the taste for bicycling has changed. The price elasticity of demand is much more inelastic. The price elasticity of demand has decreased from -5.76 to -2.70." Before the campaign, your price was $240 per pair of BBB Shorts. What should the new price be?
Your Best Brand Bike Shorts-BBB Shorts have been flying off the shelf. Your chief economist tells you that during the Covid-19 pandemic, "the taste for bicycling has changed. The price elasticity of demand is much more inelastic. The price elasticity of demand has decreased from -5.76 to -2.70." Before the campaign, your price was $240 per pair of BBB Shorts. What should the new price be? Please enter the new price here: $
Evaluate how a firm is able to estimate whether they are selling elastic or inelastic
Describe the price sensitivity you expect your customers to have based on the price elasticity for clothing.
Describe the difference between an everyday low price strategy (EDLP) and a high/low price strategy
Explain why the coffee shop manager should measure elasticity using the mid-point method in hiscalculations
You were promoted as the manager of a new clean well sanitary store taht sells cleaning and sanitation products wholesale. You recently read in an article that there the price of vitamine to be expected to increase by 20 percent. How will this affect your stores sale of sanitation products Items selected cross price elasticity Food supplement 0.34 Medicines 0.56 Foods 0.09
A recent report by the Centers for Disease Control looked at the relationship between the price of beer and the incidence of new cases of STD's. The report concluded that a beer tax increase of $.20 could reduce overall STD rates by 8.9%. Assume that a six pack cost $5.90 before the price increase. Calculate the cross price elasticity between beer and STD's. What is the sign of this cross-price elasticity? According to your estimate, are beer and STD's compliments or substitutes? Does your answer make sense? Explain.
The demand for Woobles is unit elastic. When Woobles are priced at $20.00, 10 units are sold. If the price is increased to $40, how many units of Woobles will be sold?
How to know whether to use point elasticity or arc elasticity?